When you miss a student loan, auto loan, personal loan, medical bill, or credit card payment, you may have to pay a late fee, and if you are 30 days late or more, you may receive a few phone calls from your lender. However, when you miss payments for several months, your debt can end up with a collection agency.

In addition, you may receive debt collector calls, your credit score can drop significantly, and it can be difficult to qualify for new credit. However there are a number of ways to pay off a collections bill, but it’s important to have a written agreement and use a secure collections payment method.

5 Ways To Pay off Debt in Collection 

We don’t recommend ignoring an account in collections because it’ll only make things worse. There are a number of ways to pay a collections bill. Start with debt validation, make a budget, pick a payment option that works for you, and ensure you get a written agreement before sending a payment.

1. Negotiate a Lump-Sum Payment

If you have saved up some money, you can make a lump sum payment to settle your account in full, but for less than your current balance. While it’s always better to pay in full, collection agencies are also willing to negotiate with you and accept a lower amount if you make a lump sum payment.

You can negotiate a settlement on your own through clear but firm communication with the collection agency. Check your budget and ensure you have enough money to make the collection payment if the debt collector agrees to your proposal.

2. Set Up a Payment Plan

Most debt collection agencies will offer you a payment plan on their terms, which may not always be best for you. You can always present a plan of your own based on what you can afford.

Once you know your budget and how much you can pay, create a payment plan and present it to them. Here’s what a sample payment plan can look like for credit card debt in collections:

Total Debt: $12,000  

Monthly Payment: $1,000

Number of Payments: 12

With this example, you can become debt-free with 12 credit collection service payments. Be sure to get complete details of the collection agency, including name and address, so you know where to send collection payments.  

3. Settle the Debt for Less Than You Owe

While you can always negotiate on your own, you may be able to get better results when you hire a debt relief company.

These companies can negotiate a debt settlement on your behalf and can often help you settle your account for as much as 50% before fees, which can be significant in terms of savings. If you’re not comfortable negotiating or communicating with debt collectors, consider hiring a professional.  

4. Get a Written Agreement

Once you’ve determined your budget and how you would like to pay off your debt, communicate with the collection agency to finalize the details. Keep in mind that you should only make collection payments once you receive a written agreement that confirms the amount(s) and timing of payment(s) to be made in return for the complete release of any further financial obligation to the lender or collection agency.

Review the agreement carefully and ensure it’s accurate before you submit the final payment. This will ensure you have proof of the terms you agreed to and the payments you sent to the collection agency.

5. Send the Payments

While a debt collection agency may accept several modes of payment, we recommend not providing them with any information about your bank account.

Once you’ve received a written agreement, the most secure way to send a payment is a cashier’s check through certified mail. This will help prove that the debt collection agency received your payment.

Be diligent about keeping copies and documents related to debt collectors. Write down the name of the collection agency, name of the agent, contact information, and details about what was discussed. Keep a copy of the agreement as well as receipts of any payments you send.  

Why You Should Pay Off Debt Collections

A collections account can damage your credit score and can result in harassing calls from the agency's collections system. This can be a major source of financial stress for many.

In some cases, a collection agency may also sue you for unpaid debt. The statute of limitations in your state will determine how much time a collection agency has to sue you, but it can range from three to six years. If they do sue you in court and win their case, they may be able to collect through wage garnishment.

You can avoid legal action and other serious consequences by paying off debt in collections. However, you should also be aware of your rights and options so you’re not pressured into an agreement that’s not right for you.

The Fair Debt Collection Practices Act (FDCPA) outlines what a debt collector can and can’t do. The Federal Trade Commission (FTC) also shares information about your rights when working with debt collectors.

Does Paying Off Debt in Collection Impact Your Credit Score?

While having an account in collections can lower your credit score, paying it off may not improve your credit score. When you settle or pay off a collection debt, newer scoring models can raise your credit score, but older scoring models may not show any improvement.

Different lenders use different scoring models, so it’s not easy to determine whether paying off a collections account will improve your credit score. However, the collection account will typically drop off from your credit report automatically seven calendar years after the date the debt was charged off by the original creditor and sold to a debt collector.

Get your free credit report from all three major credit bureaus once you pay off the debt to check your credit score. If your debt is still reflected in your credit report seven years after the original debt was charged off and sent to collections, you can dispute it with the credit bureaus (Equifax, Experian, and TransUnion).

Deal With Collections as Soon as Possible

Once your debt goes into collections, deal with it as soon as possible. We don’t recommend ignoring debt collection letters or calls because it won’t resolve the issue.

Your debt won’t vanish if you ignore it, so it’s best to be honest and upfront about your situation. Set up a payment plan or settle the debt with the help of a debt settlement company. Be sure to send collection payments as cashier’s checks via certified mail.

Once you’ve paid off the unpaid debt, invest some time in learning money management, budgeting, and strategies to improve your credit score by maintaining a positive payment history. Seek help from a credit counselor if needed. If your debt is not yet in collections, there are several ways to repay it, such as with debt consolidation.